Basis for Conclusions
This Basis for Conclusions accompanies, but is not part of, TR i-1.
This Basis for Conclusions summarises the Malaysian Accounting Standards Board's considerations in reaching the conclusions in TR i-1 Accounting for Zakat on Business.
The Board recognised that there is a need to issue an accounting pronouncement on zakat as:
In 2002, a working group on zakat was formed with the responsibility for identifying the need for an accounting pronouncement on zakat, and ensuring that the proposed standard is consistent with the requirements of current law and regulations. The working group is chaired by a former member of the MASB, and comprises representatives from the accountancy profession, academics, the corporate sector, statutory bodies and other user groups. In developing the standard, the Board sought the views of practitioners, accountants, auditors, zakat authorities, regulators, Islamic bankers and users of financial statements.
As part of the project, a survey was conducted by mail questionnaires to the 14 zakat authorities with the objectives to:
All the 14 zakat authorities responded to the survey and indicated that they would welcome a uniform accounting pronouncement on zakat for business to streamline the accounting treatment of zakat.
The Board also considered AAOIFI's Financial Accounting Standard 9 (FAS 9), Zakah. However, AAOIFI's FAS 9 is inappropriate in the Malaysian context because:
The Board decided to issue the pronouncement in the form of a Technical Release to provide guidance on the accounting treatment for zakat on business
TR i-1 deals only with entities that pay zakat in their capacity as separate entities that carry out business.
When an entity pays zakat on business, the amount of zakat assessed is recognised as an expense and included as a deduction from net income in the income statement of the entity. This treatment is appropriate as it reflects the discharge of a financial obligation of the entity.
In addition, the treatment also complies with the definition of expenses in MASB's A Proposed Framework for the Preparation and Presentation of Financial Statements which is defined as decreases in economic benefits during the accounting period in the form of outflows or depletions of assets or incurrences of liabilities that result in decreases in equity, other than those relating to distributions to equity participants.
ASSESSMENT OF ZAKAT
The survey responses indicated that zakat authorities use zakat rate of 2.5% in determining zakat on business. The same rate was prescribed in a resolution by the National Fatwa Council (Majlis Fatwa Kebangsaan) dated 9 December 1992. Notwithstanding that, the Board recognises that the state has jurisdiction on matters pertaining to Shariah, and decided that issues regarding the zakat rate on business shall be referred to and determined by the relevant zakat authorities.
Determination of Zakat Base
This Technical Release mentions two methods of determining zakat base recommended by the Malaysian Islamic Development Department (JAKIM) in Panduan Zakat di Malaysia, 2001:
Both methods would result in the same amount of zakat base.
Although the Board propagates these two methods, an entity is advised to refer to its relevant zakat authorities on the method of determining zakat base applicable in its jurisdiction.
Measurement of Assets and Liabilities for Zakat
Paragraph 14 of TR i-1 states that an entity shall measure assets and liabilities on the same measurement bases used in the preparation of its financial statements. In other words, preparers may use the amounts as reported in the balance sheet since assets and liabilities used in the calculation of zakat are to be measured in accordance with MASB approved accounting standards.
The Board decides to adopt this view on the basis that it would ease zakat payers in performing their obligation, facilitate zakat collectors and distributors as well as preserve the rights of zakat beneficiaries.
ISSUES OUTSIDE THE PURVIEW OF THE BOARD
During the Board's deliberations, several issues related to zakat on business were encountered, e.g. zakat chargeability of an entity, calculation of zakat, determination of zakat base, and zakat eligibility of assets and liabilities. The Board noted that these were important issues, however the Board was of the opinion that such issues fall under the jurisdiction of zakat authorities and were outside the purview of the Board. Thus, the Board decided that TR i -1 shall deal only with financial reporting issues related to zakat on business.